Wall Street to rise at open, volatility expected

NEW YORK (Reuters) - Stocks were set to open higher on Wednesday with traders citing comments from German Chancellor Angela Merkel about keeping Greece in the euro zone as calming markets.

But they cautioned that trading throughout the session is likely to be volatile, tracking developments in Europe.

Futures bounced back from steep overnight losses hit as investors worried about Greece's political and financial crisis. Merkel's comments at a joint press conference with French President Francois Hollande were seen partly alleviating those fears.

"The market was pretty weak overnight, futures were under a lot more pressure, but Merkel made a comment reiterating she wants Greece to stay in the euro and that appears to have stabilized futures," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"That is, if they are willing to keep up with their agreement, and that "if" is very much under question right now," he said.

Opinion polls show leftists opposed to the terms of the bailout that is keeping Greece afloat would likely win the new election, set for June 17. Greeks, afraid of the devaluation that would follow an exit from the euro, withdrew at least 700 million euros from their banks on Monday.

U.S. housing starts rose more than expected in April in another sign of a nascent housing recovery, even though permits for future building fell after touching a 3-1/2 year high the prior month.

"Nice to see some turnaround," said David Carter, chief investment officer at Lenox Wealth Advisors in New York. "However, this housing story is much smaller than news out of Greece and might get easily forgotten."

S&P 500 futures rose 6 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures rose 59 points, and Nasdaq 100 futures added 12 points.

The minutes from the Federal Reserve's April meeting, due at 2 p.m. (1800 GMT), will be scrutinized for any discussion on the health of the labor market as investors debate the likelihood of more stimulus measures.

The Fed meeting took place before the first Greek election, so they will not likely include clues on how the Fed is going to respond if the European crisis deepens, said Windham Financial's Mendelsohn.

J.C. Penney shares tumbled 15 percent a day after the department store owner scrapped its dividend and its effort to remake itself as an affordable fashion-oriented retail chain took a much bigger-than-expected toll on sales in the first quarter.

Target Corp posted a higher profit and raised its expectations for the year, and its shares rose 1.7 percent in premarket trading.

Adding to pressure over commodities and mining stocks, BHP Billiton, the world's biggest miner, said it expects commodity markets to cool further and that investors have lost confidence in the longer-term health of the global economy.

Facebook Inc increased the size of its initial public offering by 25 percent and could raise as much as $16 billion as strong investor demand for the No. 1 social network trumps debate about the company's long-term potential to make money.

U.S. stocks fell for the eighth day in the past 10 on Tuesday. The Dow Jones industrial average dropped 63.35 points, or 0.50 percent, to close at 12,632.00. The S&P 500 Index lost 7.69 points, or 0.57 percent, to 1,330.66. The Nasdaq Composite fell 8.82 points, or 0.30 percent, to close at 2,893.76.

(Reporting by Rodrigo Campos. Additional reporting by Ryan Vlastelica, editing by Dave Zimmerman)